Nike Buys Into NFTs

Nike, which reports second-quarter earnings Monday, is banking that sneakerheads like Mr. Arias and others will want to invest in virtual kicks as it looks to further expand the digital side of its business by tapping into emerging technologies such as nonfungible tokens, or NFTs. The tokens are essentially digital deeds that verify the authenticity of the items they represent as unique.

Earlier this month, Nike acquired Rtfkt (pronounced artifact), a startup launched in 2020 that creates NFTs of sneakers and other collectibles, for an undisclosed sum. Nike also recently filed trademark applications indicating it wants to sell NFTs of its sneakers, clothing and other goods stamped with its swoosh logo. Shortly afterward, the company launched a virtual play place on Roblox Corp.’s RBLX 7.55% free online game platform where users can dress their avatars in Nike gear.

The moves speak to Nike’s ambitions at a time when a range of fashion and other consumer-goods companies are racing to claim footholds in virtual worlds where people are expected to learn, work, shop and be entertained. Dolce & Gabbana, Jimmy Choo and Adidas AG have launched NFTs. Balenciaga worked with “Fortnite” maker Epic Games Inc., and Gucci worked with Roblox to create immersive digital worlds.

Nike didn’t respond to requests for comment about its plans for Rtfkt. The startup referred questions to Nike.

Nike has long dominated the scarcity model in the physical world by selling limited quantities of exclusive items and hyping their uniqueness, said Erinn Murphy, senior analyst at Piper Sandler & Co. “There’s so much white space for Nike to conquer in the digital realm as well,” she said.

The apparel-and-sneaker seller has spent years beefing up its digital business by launching apps like SNKRS, which offers users access to exclusive items and events. Analysts say the digital investments have been a boon for sales. Overall, Nike’s net sales through its online channels have outpaced sales through bricks-and-mortar stores for more than a year.

Rtfkt, which was valued at $33.3 million after a funding round in May, designs its own virtual sneakers and avatars, which have collectively sold for millions of dollars in just minutes. The company has manufactured physical products through so-called “forging events,” where owners of the studio’s NFTs can request to have their virtual sneakers made into real ones.

Nike could also release real-world exclusives with NFTs, and the tokens could be traded via digital marketplaces such as OpenSea.

Tech analysts say NFTs could pose financial risks to buyers because their value is largely based on speculation and thus they tend to be volatile. While NFT creators may tout the unique nature of the tokens, they sometimes create thousands for the same item.

It could take years—if ever—for NFTs to become major drivers of Nike’s sales. But the company’s peers are finding some success in the space. Adidas launched its “Into the Metaverse” NFT collection on Friday and made around $23 million.

Analysts polled by FactSet project Nike to have generated $11.25 billion of revenue in the three months ended Nov. 30, which would be roughly flat from the comparable year-ago period. Nike’s stock price is up 12% over the past year, compared with a 25% gain in the S&P 500.

Nike, like other retailers that rely on manufacturing plants in Asia, has been hit by supply-chain woes stemming from the Covid-19 pandemic. Second-quarter profit could fall roughly 20% from the year-ago period, based on analysts’ projections.

The company said in September that shipments were taking twice as long to arrive in the U.S. but that it had enough inventory for the holidays.

Selling NFTs might be one way for Nike to quickly sidestep the supply crunch.

Justin Bazdarich, a restaurant owner and self-described sneakerhead, said he is excited about Nike’s purchase of Rtfkt. Mr. Bazdarich, of Brooklyn, N.Y., owns several NFTs, one of which cost $2,000 and is associated with a rotating virtual shoe that Rtfkt created in partnership with streetwear designer Jeff Staple.

“If a big brand is coming into play like Nike, then they’re going to help educate people out there that this is the way of the future and will allow other industries to partake,” the 44-year-old said.

Write to Inti Pacheco at [email protected] and Sarah E. Needleman at [email protected]